Primary Mortgage Banks in the country have commended the move by the Nigeria Deposit Insurance Corporation (NDIC) to increase the Maximum Insurance Deposit Coverage (MDIC) for mortgage banks from N200,000 to N500,000, saying it will further increase public confidence in PMBs in the country.
Speaking at a sensitization workshop for operators of PMBs on Implementing Differential Premium Assessment System organized by the NDIC in Lagos at the weekend, mortgage bank operators said the increase in the Maximum Deposit Insurance Coverage (MDIC) per depositor has covered 99 per cent of all deposits with PMBs.
According to the Managing Director and Chief Executive of the Federal Mortgage Bank of Nigeria, Richard Esin, public confidence in the sector had improved considerably since the NDIC commenced insurance of PMBs deposits. “This confidence has been further enhanced with the upward review of the MDIC from N200,000 to N500,000 per depositor since August 2016.”
To further boost the public confidence and patronage of mortgage institutions in the country, the Managing Director and Chief Executive of NDIC, Alhaji Umaru Ibrahim said the corporation had deployed the Differential Premium Assessment System (DPAS) in computing the deposit insurance premium of PMBs to encourage market discipline.
The DPAS classifies banks into various risk buckets and apply different premium rates depending on the perceived riskiness of each bucket. According to the NDIC chief executive who was represented by Director, Special Insured Institutions Department of the NDIC, Joshua Etopidiok, the DPAS addresses the issue of moral Harvard which guarantees caution and avoidance of excessive risk taking in the interest of both operators and subscribers.
To the operators in particular, the risk based premium system, DPAS, allows the institution to pay much less premium than it would have under the flat rate system. Factors considered in computing the DPAS include capital adequacy, asset quality, liquidity ratios, internal controls which could facilitate fraud and forgeries if weak. Others are late rendition of returns, financial misreporting, poor risk management systems and non-implementation of examiners’ recommendations.
The President of Mortgage Banks of Nigeria (MBAN), Femi Johnson while speaking at the workshop noted that the introduction of the risk based insurance pricing method to determine premium to be paid makes the process more fair, transparent and cheaper for low risk banks.
He noted that the adoption of the DPAS in assessing annual premium payable by mortgage banks will promote better risk management with PMBs in line with international best practices. Johnson noted further that in view of the importance of the mortgage industry to national economic development, “it becomes imperative to reposition the subsector to harness its full potentials especially with respect to the current economic realities in Nigeria.”
The FMBN boss had earlier expressed worry over the declining number of mortgage institutions in the country following the recapitalisation process as well as some others that opted to transform into regional commercial banks or microfinance banks “even in the face of lack of new entrants into the business. While these exits offer more opportunities for existing PMBs to grow market share, the reduction in the number of mortgage institutions may be counterproductive to the economic objectives of expanding mortgage delivery service and deepening the market space.
“There must therefore be a deliberate industry effort with active support of regulatory agencies and government to reverse this unfortunate trend” Esin said.